LAHORE - The Pakistan Business Council (PBC) opposes certain provisions of the Security and Exchange Commission of Pakistan’s (SECP) proposed Amendments to Capital Gain Taxation on Securities Trading. Specifically, the provision of granting amnesty (no questions asked) as to the source of funds which are invested from 1st April 2012 to 30th June 2014 in the stock exchanges is particularly objectionable. This could potentially become a major route for laundering of funds generated from illegal sources.

The Federal Board of Revenue, in the last two decades, has announced two tax amnesty schemes to allow declaration of undisclosed funds and wealth to bring these in the tax net. Such Schemes in the past decades failed to augment any large scale declaration of undisclosed funds. Further, the SECP’s proposed exemption appears discriminatory against the legitimate taxpayers and provides an incentive to tax evaders to continually wait for such schemes and amnesties. PBC has consistently stated that all incomes, irrespective of source, must be documented and taxed.

The PBC has objectively analyzed the proposals submitted by the SECP and is of the opinion that suspending the applicability of Section 111 of the income Tax Ordinance, 2001( the Ordinance) through the proposed insertion of Clause 80 and 81 in Part IV of the Second Schedule to the Ordinance is not in the best interest of Pakistan’ capital market. PBC is of the view that such short term measures may perhaps augment the capital market in the near term, but certainly would not achieve the long term goal of having a sustainable capital market in Pakistan.

Such an amnesty scheme will directly impact capital market activity, which in turn can influence genuine investor decision/behavior and lead to distortion of capital allocation. For example, abnormal volumes/price fluctuations due to this will mean an inefficient capital allocation. The argument that a 120 day holding period is a deterrent is not fully valid as Ready to Future Market Hedging can allow a money launderer to use the markets to launder money without taking any significant market risk. The cost involved would be much lower than the benefits accrued.

PBC, on the other hand, supports other provisions in the proposed amendment meant to facilitate and make transparent the computation of CGT by National Clearing Company of Pakistan (NCCPL) as well as freezing the present rates of CGT till 2014.